Figure 3.9 - The Effect of a Wage Increase on the Feasible Set

Figure 3.13a - Optimal Choices Before and After a Wage Rise

An individual's budget constraint, representing the trade-off between daily consumption and hours of free time, changes. The original constraint and the new constraint both originate from the same point on the horizontal axis (representing maximum free time and zero consumption), but the new constraint is steeper than the original. What economic event best explains this change?

Analyzing a Change in the Budget Constraint

An increase in an individual's hourly wage rate causes their budget constraint, which shows the trade-off between consumption and free time, to shift outward in a parallel manner.

Calculating the Impact of a Wage Increase

Explaining the Effect of a Wage Increase on the Budget Constraint

An individual's hourly wage increases. Match each element of the budget constraint model, which illustrates the trade-off between consumption and free time, to its correct description following this change.

When an individual's hourly wage increases, the budget constraint, which illustrates the trade-off between consumption and free time, becomes steeper. This is because the slope of the budget constraint represents the ________ of an hour of free time, which has now increased.

An individual who can work up to 24 hours a day receives an increase in their hourly wage. Arrange the following statements in the correct logical sequence to explain how this wage increase affects their budget constraint, which represents the trade-off between daily consumption and free time.

Evaluating Changes to the Budget Constraint

Impact of a Pay Raise on Opportunity Cost

Figure 3.13b - Graphical Setup for Decomposition Analysis